Hopper to reach profitability next year, doubling down on B2B and lodging

I am writing this on Delta Airlines from Fort Lauderdale to New York where I will catch that epic 18-hour flight back to Singapore. It’s been quite a week. In New York, it was unseasonably warm, and I was able to spend a lot of time outdoors while in Fort Lauderdale, it was unseasonably stormy, and I had to spend a lot of time indoors.

Such is the unpredictability of travel these days.

I am glad I managed to squeeze in two local authentic experiences though while in Fort Lauderdale. At the airport on the way out, I had my first ever Shake Shack burger and still don’t understand what the fuss (in Singapore) is all about and on the Delta Airlines flight, I flew with two ESA bulldogs, which farted the whole way and caused a right old fuss in the first-class cabin. I think the other passengers felt they needed more Emotional Support than the owners.

This is one of those moments when I am thankful I have my Eagle Brand Medicated Oil with me and thus was able to concentrate enough to write this piece on my final impression of Phocuswright, as I embark on my journey home.

In general, I was struck by how optimistic the overall sentiment was at Phocuswright 2023. As an outsider reading the news about the USA by USA media outlets, you can be forgiven for thinking the country is in a right old mess. Elections coming up with an outcome that could be as unpredictable as the weather, street protests in New York due to the ongoing Israeli-Hamas conflict, shaky economy both at home and globally – but those factors were hardly mentioned in discussions on or off stage.

It’s as though we in travel have had enough of bad news and have learnt to take things in stride – whatever happens, will happen, let’s just deal with it one day at a time, and focus on the things we can control.

Specifically, this was very evident in my closing interview with Frederic Lalonde, CEO and founder of Hopper who, as everyone knows, is going through probably the toughest time in the 16-year history of the business he started to disrupt the traditional OTA model in North America.

It was my first interview with Lalonde, whom I had watched and observed from the sidelines, and he had always struck me as daring to challenge status quo. So I was curious to find out what’s made him the underdog he seems to be.

“I didn’t come from a privileged background,” he told me off stage. “I dropped out of school at 19. The good thing about not going to school is you can start businesses early.”

On stage, he said, “Before starting Hopper, I was a hacker. But I figured out I needed a better path in life.  I was a nerd in a basement.  I’m still a hacker – when I see a problem I want to hack it.  You end up building a company where people come from these abnormal backgrounds.  We have the misfits.”

He had his first start-up by aged 21 – and his first exit at 27. “I loved it when the big companies we were competing against were 100 times our size – now they’re only 10 times our size.  I do better when the odds are stacked against us.”

Certainly the odds are stacked against Hopper right now. Capital isn’t free anymore, there is pressure to reach profitability, he’s had to cut 250 jobs, which included its B2C Asia team, and he’s had highly public break-ups with partners such as Expedia and Traveloka.

Asked if it had been necessary to cut 250 jobs when it had raised $730 million and reported good growth over the years, he said, “It was due to an environment change – money was free for a decade, but this not coming back, and you have to do the right thing to build. It’s never fun but you have to get to profitability.”

He said Hopper would be profitable by next year – “we’ve been closing that gap month after month.”

How it is doing that is by doubling down on its HTS business, which is already profitable, and which now accounts for 50% of its revenues, projected to reach two-thirds next year.

In Asia, he said it had to cut its B2C team because it would have had to spend too much to build the brand and it’s taking a different approach to the region. “On the B2C side, you have to invest so much money to build the brand, and this is not the right time to do it.  In the US we had to build a massive consumer brand – and [because of that and because we are already pretty large] in Asia they are already giving us credibility already on the B2B side.  So we don’t need to spend loads building a consumer brand there.

“I’m still a hacker – when I see a problem I want to hack it.  You end up building a company where people come from these abnormal backgrounds.  We have the misfits.” ~ Frederic Lalonde, CEO and founder of Hopper

“We thought we needed to build massive consumer brands to sign B2B partnerships but as it turns out, we don’t need that. Partners in Asia are very receptive to HTS because they see us as competent,” he said.

And this is especially true for its fintech products in which he says Hopper is the category leader. According to Hopper, consumers are 1.6x more likely to repurchase if they add fintech to their booking vs if they booked just travel, and it says this behaviour is pretty universal across all markets.

Said Lalonde, “We’ve paid out $100m to customers for disruptions… $900 is the average amount people personally pay out of their pockets to sort disruptions.  Our fintech products perform very well, but even better when they are on suppliers’ websites.  For example, through Air Canada, we’re offering customers refunds in case of disruption and that works even better than simply through Hopper.  We also obsess about customer satisfaction – all our products have 80% satisfaction.”

Asked if it was these fintech products Expedia CEO Peter Kern was referring to as features that “exploit consumer anxiety and confuse customers” for ending the partnership, Lalonde said, “You’d have to ask him and none of that is true. Expedia was a partner in 2021 when we were 2% of market share; weirdly when we became 15%, there is an issue. We knew this was coming and I don’t take issue. Fundamentally this has made us much stronger because we have to do things on our own, and competition is a good thing.”

Hence, it is doubling down on direct hotel supply, which is currently 65% of inventory – around 18,000 rooms. It is working up to 85% by next year. “Building a direct supplier relationship is different from lazily connecting through others,” he said.

Asked why he hadn’t just done that in the past, he said, “It’s chicken and egg – we didn’t have the brand and leverage – and now we have.”

It is adding homes to its lodging inventory “because Hopper customers are twice as likely to stay in a home”. It will also add tours and activities down the line but the priority for next year is lodging.

Another area of interest is HTS E-commerce, optimizing mobile app and web channels for travel companies. “Major travel brands have signed up for our new e-commerce offering,” he said.

With 100m app downloads and 70% of its customers Gen Z and Millennials, Lalonde said its customers see Hopper as “cute” but the word he would associate with Hopper is “speed” – “how fast we move and experiment, and are willing to listen to the customer, roll back what is not working and pivot to what customers want”.

Speed is also associated with the Chinese brands such as WeChat, Little Red Book and Meituan that he said inspired the Hopper model. These brands, he noted, have been able to figure out the social-mobile-commerce trifecta. “They have a deep understanding of how social, mobile and commerce come together and Asia is a decade ahead of the West in this aspect.”

And with Chinese consumer brands like Temu and Shein coming to the West and doing really well, he believes they are a predictor for the next generation of consumers.

He acknowledges that building out both B2C and B2B businesses at the same time can be a challenge because both require heavy resources but said, “There is a real flywheel effect. When we go to a company, we are not selling technology, we are an e-commerce partner. We don’t charge the HTS customer money, they make when they make money.”

For someone who relishes disruption, Lalonde is pretty excited about this moment in travel with the emergence and rapid acceleration of generative AI and how it might shake up things at the top of the funnel. However he’s not allowing himself to be too carried away by it and knows he has to focus on the things he can control for now.

He does weigh in on the debate as to who will win in the AI race to the top of the funnel – the giants with their access to data or the small guys with their speed and agility?

In a recent podcast, KAYAK and Open Table’s CEO Steve Hafner said there’s nothing the little guys can do with AI or other tech that the big boys can’t copy and scale faster while Bobby Healy of Meili Travel Technology and Manna Drone Delivery believes that now is the time for the little guys to do a Booking.com killer.

What does he think about this, I asked Lalonde. “It is true AI requires a lot of data and the big boys have that but there is no reason to think that the small guys, the underdogs, don’t have a chance. However I don’t think anyone can kill Booking.com but we do need a strong, third alternative player.”

When asked what qualities he’d like to improve about himself, he said, patience and kindness. “As I get older, I see how important these can be.”

And focus, of course, to get Hopper through to the profitable side of the moon.